The Government’s Help-to-Buy cheap loans scheme may turn out to be
counterproductive by fuelling a house price bubble that locks potential
buyers out of the market, the International Monetary Fund has warned.

The policy was designed to make it easier for first-time buyers to get on to the property ladder and was a flagship measure in the March Budget but it has since come in for heavy criticism from economists. The Governor of the Bank of England has also raised concerns.

Yesterday, in its annual update on the UK economy, the IMF said: “There is a risk that, in the absence of an adequate supply response, the result would be mostly house price increases that would work against the aim of boosting access to housing”.

David Lipton, the fund’s deputy managing director, added: “In a country where housing prices have been elevated, calibrating what is an acceptable augmentation is a tricky business”.

Under the plan, the Treasury has committed £3.5bn of shared equity loans to housebuyers and billions more under a new “mortgage guarantee” that moves some default risk on as much as £130bn of new lending from the banks to the taxpayer. Rising house prices and increasing transaction levels suggest it has already begun to have an effect.

However, Mr Lipton said the Government would need to ensure the increase in demand was matched by supply to avoid a dangerous bubble.

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“If there can be some policies to provide incentives for land being held for capital appreciation to be developed, that would help balance the housing sector policies to try to encourage both demand and supply, which would help moderate the extent to which the impact would be just on prices,” he said.

The Government is speeding up the planning system and has incentivised housebuilding to ensure there is some balance.

The IMF acknowledged that a degree of house price inflation would help the economy by boosting confidence.